Central Bank Determined to Drive Internationalisation of the Yuan

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China’s central bank has reaffirmed its determination to promote the internationalisation of the Chinese yuan.

In the 2017 yuan internationalisation report posted on its official website, the People’s Bank of China said that it expected global usage of the country’s official currency to increase this year following a decline in yuan settlement for trade deals in 2016.

“Looking ahead, the scope of international usage of renminbi will be further expanded in 2017 and usage channels will be further widened.”

The report sees the yuan’s role as a reserve currency further expanding, with over 60 countries and regions making the yuan a part of their foreign exchange reserves.

Despite the inclusion of the yuan in the International Monetary Fund’s Special Drawing Right basket last October, 2016 was the year that internationalisation of China’s official currency meet with significant set back.

According to the PBOC report the value of trade deals settled in the yuan saw a 35.5% year-on-year decline in 2016, with yuan settlement accounting for 16.9% of China’s total goods trade.

This marks a major turnaround compared 2015 when China’s yuan settlement for goods trade rose to 22.6%, from around 20% in 2014.

Analysts say that the stalling of yuan internationalisation last year was the result of faltering exchange rates, as well as the tightened capital controls imposed by Beijing in response to a flurry of overseas acquisitions by Chinese investors.

This triggered a 6.5% drop in the yuan against the dollar last year, for the biggest largest annual decline in over two decades.

The yuan has since bounced back by 5%, on the back of the underperformance of the greenback in 2017 and further tightening of capital outflows by Beijing.

The report arrives just as the head of China’s State Administration of Foreign Exchange reiterated the importance of opening up the country’s finance sector and maintaining both the flexibility and stability of the Chinese yuan at the sidelines of the 19th National Party Congress.

 

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